Counterfactuals - Explanation and examples

What would happen if...


What is counterfactual thinking?

Counterfactual reasoning means thinking about alternative possibilities for past or future events: what might happen/ have happened if…? In other words, you imagine the consequences of something that is contrary to what actually happened or will have happened ("counter to the facts"). For instance, “if Lee Harvey-Oswald had not shot JFK, then someone else would have” and “if Lee Harvey-Oswald had not shot JFK, then the sky would have rained marshmallows” are both potential counterfactuals to the the JFK shooting, albeit not equally likely ones.

Examples of counterfactual thinking

Consider this thought experiment : Someone in front of you drops down unconscious, but fortunately there’s a paramedic standing by at the scene. You could push the paramedic out of the way and do the CPR yourself, but you’ll likely do a worse job. So even if you stop the patient from dying, your (counterfactual) impact is likely small, if not negative, because they would have been saved anyway. This same analysis applies to our choices of career: if you don’t choose to study medicine, the counterfactual is that someone nearly as good as you will; if you don’t start that successful company, someone likely will in the next few years anyway (so your impact is the difference in time).

When we take one action, it precludes another we could have taken in its place. The opportunity cost of a choice is the value of the choice of a best alternative lost while making a decision. 

Suppose that you are considering whether to donate $40,000 to provide a blind American with a guide dog. Suppose that if you don’t, then you have the opportunity to use the $40,000 to pay for surgeries to reverse the effects of trachoma in 2,000 patients in the developing world. In this case, the opportunity cost of choosing the blind dog option is the value of 2,000 patients having their eyesight saved. These numbers are entirely real and because of the opportunity costs, we have to pursue the very best option.

Also check out

  1. Counterfactuals, The Incidental Economist
  2. Opportunity Cost, Library of Economics and Liberty

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